All about the Advertisement Code for Investment Advisers and Research Analysts

All SEBI registered intermediaries have to follow the code of conduct for advertisements, as defined by SEBI. 

However, so far, the Investment Advisers (RIAs) and Research Analysts (RAs) did not have  such a code applicable to them. 

But, no more. 

On April 5, 2023, SEBI issued Advertisement Code for RIAs and RAs.

The code mentions which forms of communication are included as advertisements, what is prohibited in the advertisement, what disclosures to be given by RIAs and RAs in the advertisements. 

Let’s decode the code. 

What is an advertisement?

As per the code “Advertisement shall include all forms of communications, issued by or on behalf of IA/RA, that may influence investment decisions of any investor or prospective investor”.

Further, the forms of communication include pamphlets, circulars, brochures, notices, research reports or any other literature, document, information or material published, or designed for use in any publication or displays (such as newspaper, magazine, sign boards/hoardings at any location), in any electronic, wired or wireless communication (such as electronic mail, text messaging, messaging platforms, social media platforms, radio, telephone, or in any other form over the internet) or over any other audio-visual form of communication (such as television, tape recording, video tape recordings, motion pictures) or in any other manner whatsoever.

What is not allowed to be used while advertising?

It is not that you cannot advertise your products or services at all. However, you have to follow the code of advertisement while doing so. 

Here is the list of things that the advertisement should not contain:

• Anything which is prohibited for publication under the law.
• Statements which are false, misleading, biased or deceptive, based on assumptions or projections.
• Any misleading or deceptive testimonials.
• Statements which, directly or by implication or by omission, may mislead the investor.
• Any statement likely to be misunderstood or likely to disguise the significance of the same or any other statement contained in the advertisement.
• Any statement designed to exploit the lack of experience or knowledge of the investors.
• Any statement that is exaggerated or is inconsistent with or unrelated to the nature and risk and return profile of the product.
• Extensive use of technical or legal terminology or complex language and the inclusion of excessive details which may distract the investors.
• Reference to any report, analysis, or service as free, unless it actually is free and without condition or obligation.
• Any promise or guarantee of assured or risk free return to the investors.
• The advertisement shall not imply any assured returns or minimum returns or target return or percentage accuracy or service provision till achievement of target returns or any other nomenclature that gives the impression to the client that the investment advice/recommendation of research report is risk-free and/or not susceptible to market risks and/or that it can generate returns with any level of assurance.
• Any statement which directly or indirectly discredits other advertisements or intermediaries or makes unfair comparisons or ascribes any qualitative advantage over other intermediaries directly or indirectly.
• Reference to past performance of the IA/RA.
• Superlative terms such as “Best”, “No. 1”, Top Adviser/Research Analyst, “Leading”, “One of the best amongst market leaders”, etc. so as to provide any endorsement of quality or standing of the IA/RA. 
• Advertisements shall not include SEBI Logo.
• The IA/RA shall not engage in games, leagues, schemes, competitions etc. which may involve distribution of prize monies, medals, gifts, etc.

What is allowed? 

Factual details of awards received by the IA/RA from independent organisations are allowed to be included in the advertisement. 

What are the disclosures to be included in the advertisement?

Now that you have decided to advertise your products and services, you need to give disclosures in the advertisement. 

The disclosures should contain the following:

1. Details of IA / RA – Name of the IA/RA as registered with SEBI, complete office address with telephone no., SEBI Registration No., membership no. of BASL (in case of RIAs) or SEBI recognized supervisory body (in case of RAs) logo/brand name/trade name of IA/RA, and CIN of the IA/RA, if applicable.
2. Declaration – That the information is accurate, true and complete in unambiguous and concise language.
3. Standard warning – which states “Investment in securities market is subject to market risks. Read all the related documents carefully before investing”. The warning should be in minimum 10 font size.

In case of audio-visual media based advertisements the warning message should be in a clear and understandable manner.

So if you use videos to advertise, you have to make sure that the standard warning is present in writing as well as orally. 

If the advertisement is in a language other than English, standard warning should be translated accordingly. 

4. Advertisement in the form of SMS/Message/Pop-up, social media etc – such advertisement to include the official website link to be given in such message which will contain all the details required.
5. In case any securities are displayed as an example – such advertisements will need a disclaimer stating that “The securities quoted are for illustration only and are not recommendatory” should be mentioned.
6. Advertisements and communications/correspondences with clients have to include the disclaimer that “Registration granted by SEBI, membership of BASL (in case of IAs) and certification from NISM in no way guarantee performance of the intermediary or provide any assurance of returns to investors.

Is prior approval required from SEBI?

Prior approval for the advertisement/material is required from BSE Administration & Supervision Ltd. (BASL) in case of IAs and other SEBI recognized supervisory body in case of RAs before the issue.

So we should expect very soon, a supervisory body will come up for RAs as well. 

However the manner of approval is not mentioned in the circular and we have to wait for another clarification from SEBI. 

What if some third-party platform is issuing an advertisement on behalf of RIAs / RAs?

The code of advertisement will be applicable to any other investment / research / consultancy agency associated with the IA/RA and issuing advertisement wherein the IA/RA has been named in the advertisement.

However, it is not clearly specified in the code whether third-party platforms like smallcase, where the past performance of the portfolios are displayed, will be affected by this code. 

Do we need to maintain copies of advertisements?

Yes, copies of the advertisement have to be retained by IA/RA for a period of five years. 

What RIAs and RAs need to do?

The important thing to note here is that advertisement includes “all forms of communications that can influence investment decisions of any investor or prospective investor”.

It also includes advertisements made in any form over the internet. 

So, apart from social media, any communication made through the website or microsite will also be included. 

The RIAs and RAs need to be careful of the content of any communication made by them.

Any data which is factual, e.g. performance of a particular stock or mutual fund, is allowed to be showcased. 

However, the past performance of portfolios or the recommendations given by the RIAs and RAs are not allowed. 

Regarding the advertisement on third-party websites / platforms, it will be the responsibility of the RIAs and RAs to follow the code and not of such websites / platforms. 

The circular is effective from May 1, 2023. Till then we have to wait and watch for any further clarifications from SEBI in this regard.